Globetronics Technology: Strategic Shift Boosts Outlook, Target Price Raised

Globetronics Technology (GTB MK) is undergoing a significant strategic transformation under its new leadership team, leading to an upgraded rating and a higher target price (TP). Following a recent meeting with GTB’s new leaders, we feel optimistic about the company’s long-term trajectory. Consequently, we have adjusted our earnings forecasts for FY24-26, leading to a revised TP of MYR1.65, a notable increase of 60 sen. This new TP is based on a recalibrated 5-year forward price-to-earnings ratio (PER) mean, now pegged at 26x FY25E PER, compared to the previous 21x FY25 PER. As a result, we have upgraded GTB to a HOLD rating. While the company’s commitment to diversifying its customer base and increasing capital expenditures (capex) is promising, we remain cautious about execution. A successful ramp-up in production will be a key catalyst for further re-rating.

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Focus on Capex and Customer Diversification

The new leadership has clearly shifted its strategy from the previous management, particularly since the Ng family sold its 10.4% stake to APB Resources for MYR140 million in December 2023. The new management is committed to aggressive capex investments to enhance technical capabilities and cater to two potential new customers: a Taiwan-based Outsourced Semiconductor Assembly and Test (OSAT) company and a leading U.S. optoelectronics player in data communications. This diversification strategy is expected to impact the company’s dividend payout ratio (DPR) starting in FY24E.

Advancements with New Memory Customer

GTB has made significant progress with its new memory and logic product customer from Taiwan. The company has qualified five new products, with pilot production set to begin soon. GTB aims to qualify an additional 20 products by FY26. Although the capex for this new product line is substantial, the customer is expected to provide back-end testing equipment, alleviating some cost pressures. This Taiwanese customer is projected to contribute approximately 20-25% of GTB’s group turnover by the end of FY26E.

Earnings Forecast Adjustments for FY24-26

Despite a 6% reduction in FY24E earnings, we have increased our earnings forecasts for FY25E and FY26E by 4% and 12%, respectively. These revised forecasts are based.